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Down, but he's buying as much as he can. He would have named it a Top Pick if he could. Mountain of selling the past few days, but he can't see any fundamental problems. 18% free cashflow yield.
Management reiterates it's done with M&A, laser focused on paying down debt and returning capital to shareholders.
Very reasonable question, but it's complete noise. Constraints to US production growth include the ongoing religion to remain disciplined and maximize free cashflow. In the US, energy sector is only about 4% of the S&P, so it's pretty irrelevant. Any whiff of these companies pursuing meaningful growth and the stocks will get destroyed.
As well, can clearly see that US shale inventory is eroding on depth and quality. The basins are maturing.
When a company does M&A, it's usually to solve 1 of 2 problems. Either a balance sheet issue or an inventory problem (not enough or poor quality).
Most of the senior producers have 30+ years of stay-flat inventory. Balance sheets are strongest in history. We're not on the cusp of a massive M&A wave. Plus, many in the US have been mergers of equals or measly 5% premiums. If he's correct on $80 oil and $3.50 gas, he can see 80-100% upside potential on many of these names. That's what he's after.
His thesis is 35 years minimum of stay-flat inventory, 14-16% free cashflow yield for 2025-26, soon to pay down as much debt as it needs to. Inflecting imminently to 100% return of capital. If you're bullish on oil, sit on it and collect the modest dividend. Two years out, sees $45 target at $80 oil.
Frustrating. A 10% weight for his fund. Good inventory depth, probably 12-15 years. Respects the CEO. Investors are getting 50% of free cashflow. 23-26% free cashflow yield next year and 2026. He targets $9.30 in 1 year, $11.20 in 2 years, so roughly 90-100% upside.
Meaningfully buying back shares means an inevitable, eventual rerating in the stock.
He's biased, but if you're looking for an energy ETF he'd recommend NNRG, his own fund. Lots of natural gas exposure.
Thinks nat gas as a commodity is bottoming out seasonally. Lots of varied opinions for the price next year. All comes down to winter weather and how cold is it going to be. Depends on cadence of buildout of LNG capacity in Canada and US. Delays in US.
In general, risk/reward favours oil, so that's why he's in oil names.
He's biased, but if you're looking for an energy ETF he'd recommend NNRG, his own fund. Thinks nat gas as a commodity is bottoming out seasonally. Lots of varied opinions for the price next year. All comes down to winter weather and how cold is it going to be.
In general, risk/reward favours oil, so that's why he's in oil names.
He's been doing this for 21 years, and his ability to forecast M&A has not been phenomenal. The common theme is that of getting something for nothing, such as decades of free cashflow.
You can get that in the Montney, the Duvernay, the Canadian oil sands. Companies that are trading at 10-14% free cashflow yields and buying back stock every year are natural takeout candidates. Those attributes fit almost every company.
As a fund manager, M&A potential is never, ever one of the attributes he looks at.
He's stuck with it through some real pain. Hit its numbers for 2 quarters in a row, exceeding expectations. Beat on higher production and lower capex. At least 20 years of high-quality, stay-flat inventory. 60% of free cashflow to shareholders, meaningful buybacks. 18% free cashflow yield, 1/2 in buybacks and 1/2 as dividend. Yield is 3.74%.
Sees $8.32 one year out, 71-104% potential upside 2 years out.
A 10% weight for him. Favourite large cap in Canada. Very strong team. Downstream operational issues cleared up. 12% free cashflow yield next year at $80 oil. Debt target hit. 100% free cashflow to investors.